Long-standing demands remain unaddressed; PCBA duty hike to push up cost of services: Telco body COAI

The Cellular Operators Association of India (COAI), which represents Reliance Jio, Bharti Airtel, and Vodafone Idea, maintained its demand to reduce customs duty to zero, which gradually increased depending on the creation of an ecosystem for manufacturing telecom gear in India.

Indian telecom operators said the government’s move to increase basic customs duty (BCD) from 10 percent to 15 percent on printed circuit board assembly (PCBA) of certain specified telecom equipment will increase service costs as they continuously upgrade their networks.

“COAI has previously requested exemptions on customs duties for certain telecom equipment to alleviate the cost challenges associated with deploying this critical infrastructure. Over the past 5 to 6 years, the government of India has gradually increased the customs duty on telecom equipment to 20 percent, posing a substantial financial burden and significantly impacting the rollout of 5G services in India,” SP Kochhar, director general, COAI said in a statement.

“Further, until high-quality equipment is available domestically at competitive prices, COAI urges the government to reduce customs duties for 4G and 5G network products, as well as other related items, to NIL,” he added.

The Cellular Operators Association of India (COAI), which represents Reliance Jio, Bharti Airtel, and Vodafone Idea, maintained its demand to reduce customs duty to zero, which gradually increased depending on the creation of an ecosystem for manufacturing telecom gear in India.

For the Budget 2024-25, the body said the telecom operators’ long-standing demands remain unaddressed.

Finance Minister Nirmala Sitharman, in her Budget speech 2024 on July 23, proposed increasing BCD from 10 percent to 15 percent on PCBA on specified telecom equipment to boost the domestic manufacturing industry. "To incentivise domestic manufacturing, I propose to increase the BCD from 10 percent to 15 percent on PCBA of specified telecom equipment," Sitharaman said on July 23 while presenting the Union Budget 2024-25 in Parliament.

The telecom sector maintains that the Universal Service Obligation Fund (USOF) levy be abolished or suspended considering the huge unutilized corpus in the USO Fund to the tune of nearly Rs 80,000 crores.

“Till the utilisation of this fund, no USOF levy should be charged from the operators. Further, the License Fee needs to be reduced from 3 percent to 0.5 percent-1 percent, to cover the administrative costs of the Government only, and also clarifying the definition of Gross Revenue (GR) to exclude revenue from activities not requiring a licence,” Kochhar said.

However, certain domestic contact manufacturers of telecom equipment said the move would help increase local value addition and create jobs in the country. They said PCBA, which is integral to the functioning of telecom hardware like routers, switches, and base stations, could be significantly impacted by this change.”

“The telecom PLI has done well in the last 18 months. The latest move to increase basic customs duty to 15 percent will increase localisation and create more jobs. There is $6 billion worth of PCBs being imported into the country,” Sunil Vachani, executive chairman of Dixon Technologies, told Moneycontrol.

The move will deepen the local manufacturing for telecom equipment. “It is a positive step," he said.

Dixon has a joint venture with Airtel to make customer premises equipment (CPE) and routers. It expects the demand for these devices to pick up due to the rollout of the country's 5G fixed wireless access (FWA) broadband service.

Fibre-to-the-home or FTTH equipment maker GX Group also believes the increased BCD on PCBA for telecom equipment supports local manufacturers and lowers costs for telecom original equipment makers (OEMs). “This development will invigorate the industry with renewed energy and confidence,” Paritosh Prajapati, CEO of GX Group, said in a statement.

Nittin Arora, Partner at Grant Thornton Bharat, also believes the increased BCD on PCBA will incentivize domestic production, create a level playing field, and attract foreign investment.

Harsh Walia, Partner at Khaitan & Co., said the move will bolster local production and reduce import dependency, fostering growth and innovation within the domestic telecom sector.

“The 2024 budget’s allocation of Rs 1,16,342 crores for IT and Telecommunications sectors underscores a strong commitment to enhancing digital infrastructure and connectivity across the nation. This investment is likely to enhance network coverage, particularly in rural areas, and support next-generation technologies like 5G, with pathways to 6G," Walia said.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.